CIT seeking federal help

NEW YORK – In a sign the financial crisis isn’t over, CIT Group Inc., the No. 1 lender to small and midsized U.S. businesses, is scrambling to get help from the federal government.

The ailing company’s stock fell toward $1 Monday as investors fearing a bankruptcy court filing unloaded the shares. A collapse of CIT, whose 1 million clients include big names from the franchisee of Dunkin’ Donuts to retailer Dillard’s Inc., could deal a devastating blow to the economy by cutting off financing just as businesses need it most, analysts warned.

That in turn could force thousands of small and medium-sized companies to drastically cut costs or shut down – driving up unemployment and dashing hopes for a swift economic recovery.

“They’d have to lay people off, downsize and maybe shut their doors,” independent banking analyst Bert Ely said of CIT’s clients. “It would hardly be positive for the economic recovery.”

CIT’s crisis brought back memories of the brutal losses suffered by fallen Wall Street firms like Bear Stearns and Lehman Brothers. It also posed yet another challenge to the Obama administration, which is struggling to right the economy despite a $787 billion stimulus and a raft of federal bailout programs.

Companies that depend on CIT for financing are already weighing the consequences of possibly losing the lender.

“If CIT were to go away, it would take a financing option away from our franchisees who want to buy stores or expand their networks,” said Michelle King, spokeswoman at Dunkin’ Brands Inc., parent company of the Dunkin’ Donuts chain.

For the apparel industry, a collapse of CIT would have “near cataclysmic,” consequences for its small to midsized clients, said Andrew Jassin, co-founder of Jassin-O’Rourke Group Inc. an apparel consulting company.

The retail and apparel industries are preparing for the critical back-to-school selling period and are in the midst of ordering merchandise for the holidays.

“This could affect the lifeblood of the flow of goods to the stores,” said Vincent Arscott, senior director of Fitch Ratings.

Apparel industry insiders say it would be very difficult for rivals to absorb CIT’s clients because other lenders are already under financial strain, leaving many orphaned suppliers potentially without any access to financing.

Michael Cipriani, executive vice president of Rosenthal & Rosenthal Inc. Factors, a rival of CIT that’s considered healthy, said the “phone has been ringing off the hook” from CIT clients looking to have their receivables covered. But Cipriani said there’s a limit to how much more business he can take.

“I don’t think the industry can handle it,” he said.